Home Owners Associations are as vulnerable to the mortgage and real estate meltdown as banks, property owners and investors are. There is no escaping the wrath of the marketplace. Homeowners finding themselves in mortgage payment trouble often stop meeting their HOA responsibilities even before letting the loan itself go delinquent. That can spawn an unrelenting downward spiral where the HOA falls short on its fee collections and has to cut back on services and maintenance, while affected homeowners later on go into foreclosure and abandon their properties, leaving vacancies subject to blight and all sorts of ugly stuff. The end result is deteriorating property values that can push other owners to leave the subdivision before things get out of hand.

Mortgage lenders have been slow in taking possession of delinquent homes because they don't want to glut the housing market. They have trouble selling for a decent price what's already listed for sale as it is. Many units are underwater - mortgage balance is higher than the underlying value - anyway, so what's the hurry. Pouring more inventory onto it would only continue softening values and further terrorize their already weak balance sheets. Not being in possession means they are also not legally responsible for the maintenance fees, leaving HOAs crying bloody foul. And for a good reason. They are literally between the rock and the genuinely hard place.

Some creative real estate legal minds have come up with a solution to that. For lack of a better name it's called a reverse foreclosure. This is what it looks like. The HOA files for a foreclosure, which is well within its rights, because the homeowner ceases making dues payments, and takes title. Of course it cannot sell due to the bank's mortgage lien on the home. But it can give up its claim to it and petition the judge to hand the title back to the financial institution which makes it now liable for the dues. Nice little maneuver.

This procedure is rather new and may not be applicable in all states. It depends on how each state's law is written in this regard. Florida seems to be the testing ground here as it has accumulated its share of mortgage foreclosures and subsequent HOA revenue shortfalls and the law there supports this.

The mortgage and real estate turbulence will continue for the foreseeable future, putting more pressure on HOAs to find the needed revenue for their operations and reverse foreclosure can offer a workable remedy. States that lack this type of structure may add it to their existing statues later on to help balance the playing field.